Finance

Little known redundancy blunder trips ex Sports Direct boss

By Ranjit Dhindsa, head of Fieldfisher's employment law team
Finance
Published: 16 February 2017

In what appears to be a fatal case of taking one’s eye off the ball, the former CEO of retail giant Sports Direct is facing impending prosecution for an offence involving notification of redundancies.

Later this year, Dave Forsey, who severed his relationship with owner Mike Ashley in 2016, will be charged with failing to notify the Department of Business (BIS) about his intention to make around 80 employees redundant, following the closure of a warehouse in Scotland.

Unlimited fines
This type of case has rarely been prosecuted in the past, but Forsey now faces a maximum fine of £5,000 and could be banned from becoming a director of another company for up to 15 years.

Even so, he may think himself lucky since offences committed after March 2015 now carry unlimited maximum fines, depending on the severity of the offence – a sure sign that the Government intends to take an increasingly tough approach to non-compliance.

What Forsey appears not to have realised is that when collective redundancy looks likely, employers must not only consult with employees, they must also inform the BIS 30 days before the first dismissal where 20 or more job losses are involved, 45 days in advance if 100 or more redundancies are planned.

This information must be provided by completing an HR1 form, easily available online, with a copy of notice also sent to any representatives involved. Failure to do so not only opens corporations up to criminal liability, but individuals – including directors, company secretaries and managers – can also be held personally liable.

City Link case
Forsey is not the first high-profile employer to fall foul of this law. In 2015, directors of City Link were prosecuted when the company went under at Christmas 2014, resulting in more than 2,500 job losses. Although the offence has existed since at least 1992, the City Link case appears to have been the first time a prosecution has been pursued.

The directors of City Link were eventually found not guilty and acquitted of the charges against them. The court decided that because they were actively pursuing a buyer, there was no duty to submit an HR1 until after administration began. But they were also hauled up in front of the Employment Tribunal for failing to consult with employees early enough in the redundancy process and the employees involved received a maximum protective award of 90 days’ pay.

Although the Government has begun by bringing a few particularly flagrant test cases, it’s clear that offences of this type stand to be treated more seriously going forward, with more prosecutions likely, particularly as the courts become more familiar with the offence and there are more convictions and there are few grounds for employers to be complacent.

How can employers protect themselves?
In the City Link case, the court and the Tribunal reached quite different conclusions about the date on which the duty arouse to consult with employees, and to notify the BIS. These contradictory findings illustrate the confusion around the current law and the difficulty that creates for employers.

This uncertainly in the law is unlikely to be resolved any time soon so the safest approach is to begin consultation as soon as possible. Where insolvency is imminent, it’s best to start the process immediately it becomes clear that redundancies are likely. Where close looks likely, consulting about the decision to close minimises the risk of a protective award.

At the same time, employers should submit the HR1 form to the BIS.

Does it matter when the proposal to make redundancies is made?
Although lawyers get very excited about the question of when the duty to consult arises, in most cases where there are collective redundancies, it doesn’t really matter. In most situations, consultations must begin and the HR1 submitted 30 or 45 days before the first dismissal. The date will be the same, whenever the proposal is made.

The only situations where it does matter are involving insolvency as in the City Link case, where the employer says events moved too quickly to allow the full period of consultation. This argument fails if it becomes clear that redundancies were known to be inevitable much earlier.

The second is where there is a proposal to close a workplace. One view is that because closure makes redundancies inevitable, this qualifies as a proposal to make redundancies, so the employer must consult with employees and submit an HR1 form in relation to the closure itself. The other view is that consultation can wait until after the closure is finalised.

Can an employer make changes to T&Cs?
Redundancy is widely defined within this legislation as any dismissal resulting from reorganisation, whether or not there is reduction in the work carried out.

If terms and conditions are being changed, there is a chance that dismissals will be necessary if employees refuse the changes. These will count as redundancies. If an employee resigns because of changes and claims constructive dismissal, this also counts as redundancy.

In practice, although there is no law that requires consultation about changing T&Cs, consultation is required if 20 or more employees will be affected. For this reason, an HR1 must be submitted for a proposal to change terms and conditions.